French Finance Act 2013 after the Constitutional Council censorship: a general overview (French loi de finance 2013)
The Constitutional Council has censored several provisions of the Finance Act 2013, including the contribution of the very high earnings and the recognition of capitalized income cap of the ISF.
The Finance Act 2013 (No. 2012-1509 of 29 December 2012) was published in the Official Journal of 30 December 2012 (page 20859, Text No. 1). Some measures from the text finally adopted in the National Assembly December 20, 2012 were subject to censorship by the Constitutional Council.
Income Tax - Income from movable capital
The submission to IR scale for such revenues is valid, for 2013 income. According to the Constitutional Council, in deciding the liability to the scale of the income tax revenue from capital, together with a number of amenities and features derogation, the legislature has not created a "rupture before public burdens".
The non-discharge of the levies in 2012 is retroactive and therefore invalid. The law adopted December 20, 2012 plans to remove full discharge samples of 21% or 24% made in 2012, at the option of the taxpayer, dividends and income from fixed income to impose a progressive scale of IR. The levy paid in 2012 would be eligible for a tax credit against the IR due for 2012 and, if necessary, refundable.
According to the Constitutional Council, these provisions would have the effect of increasing the tax payable in respect of income from capital received in 2012 even though taxpayers are under the law, a tax already paid that has released their tax obligations in respect of such income. The legislature's intention to ensure, in 2013, additional revenues to reform the terms of RCM tax is not a sufficient reason in the general interest to challenge a retroactive tax which Parliament had given a character discharge and that was already paid. Section IV of Article 9 has been declared contrary to the Constitution. Paragraphs 2-7, 2-8 and 2-17 are not applicable.
The provision that the family allowance shall cease to apply from the income tax of 2012 (art. 9-I H-2; CGI art. 158, 3-5 ° repealed) is maintained (Law art. 9-VI).
The 75% tax is censored
Article 12 of the text adopted December 20 called for the institution of an exceptional solidarity contribution on very high activity incomes applicable to the portion of revenues in 2012 and 2013 exceeding € 1m. This is not the confiscatory nature of the tax that the sages have declared this provision unconstitutional but ignorance of the requirement to take into account the ability to pay and the principle of equality before public burdens. Indeed, it was expected that the threshold of € 1 million per person is appreciated without taking into account the existence of the tax household. However, these are already subject to household income tax.
Partial invalidation of the new global cap on tax breaks after IR 2013
Proportional to the fraction of taxable income ceiling is unconstitutional. The new lower cap overall tax loopholes for investment and expenditure made in 2013 (Law art. CGI art. 200 A modified) should have taken the double Form:
- An absolute cap of € 10,000, excluding benefits relating to overseas investments and SOFICA;
- On a ceiling of € 18,000, plus a cap proportional to taxable income (4%) for households that benefit from tax tax cuts for investments overseas and / or capital subscriptions of SOFICA.
Accordingly, have been declared unconstitutional, and therefore are deleted, the words "an amount equal to 4% of taxable income used to calculate the income tax as provided in I Article 197 "(Article 73, fourth al. changed).
For the rest, the provisions of section 73 of the Act, which does not have retroactive effect, do not ignore any constitutional requirement and have been declared in conformity with the Constitution.
Cap of € 10 000 or ceiling of € 18,000.
The double ceiling applies therefore as follows:
- The total tax benefits provided by tax cuts and credits covered by the overall cap, with the exception of tax reductions and deferrals resulting from overseas investments and tax cuts for capital subscription of SOFICA (CGI art. unvicies 199), is reduced to € 10 000;
- The total tax benefits provided by tax cuts and credits covered by the overall cap, held within the limit of € 10,000, plus the amount of tax reductions and deferrals resulting from overseas investments and tax reduction for capital subscription SOFICA can not obtain a reduction of the tax due which exceeds € 18,000 (over-cap global).
Reform of the French wealth tax 2013
Validation of the new scale and the removal of the ISF reduction for dependents. The progressive applicable scale in 2013 includes five taxable bands with rates ranging from 0.5% to 1.5% and affects all assets of more than € 1.3 million (CGI art. 885 U).
This scale has been validated by the Constitutional Council (paragraph 91).
The Constitutional Council also considers that the abolition of the wealth tax reduction of € 300 per dependent person is consistent with the constitution (CGI art. 885 V repealed), the legislature has chosen for French ISF principle of taxation per household without considering a mechanism for family quotient (item 92).
ISF cap by income: validation of the mechanism of capping. As the French wealth tax 2013, taxpayers are likely to benefit from a cap on their fees. This system allows the cap to not spend more than 75% of their income to pay their taxes. If this percentage is exceeded, the amount of the ISF is reduced by the amount found (CGI art. 885 Va bis). This mechanism is validated by the Constitutional Council (paragraph 93).
For the calculation of the ceiling of the ISF, the income to be taken into account includes global revenues net of business expenses from the previous year, after deduction of only categorical losses attributable to the aggregate income of tax-exempt income income realized during the same year in France or outside France and products subject to withholding made during the same year in France or outside France.
Gains and all income is determined without regard to exemptions, thresholds, discounts and rebates applicable to the calculation of the IR, except those representing professional fees. This text is approved by the Constitutional Council.
Exemption of business assets.
Units or shares of a company in which the taxpayer carries on business, commercial, craft, agricultural or liberal are considered business property and are exempt from wealth tax, under certain conditions (CGI art. 885 O ter). When the balance of the society in which the rights are held includes items that are not necessary to the exercise of the activity, the sole fraction of the value of units or shares necessary for social activity industrial, commercial, craft, agricultural or liberal society is considered a well-exempt professional ISF (CGI art. 885 O ter), the excess is a subject to wealth tax.
The legislator has introduced a new version of this provision by providing that the corporate assets not required for industrial, commercial, craft, agricultural or liberal society are not considered business property and must be valued in the Wealth tax-subject estate, in proportion to the percentage held in this company.
According to the Constitutional Council, this new version is not compatible with the Constitution. Indeed, the legislature can not include in the shareholder's estate up to the percentage held in the company even though it is not established that these properties are, in fact, available to shareholder or partner (paragraph 96).
Reform of real estate capital gains: only the surcharge remains
Land taxation of real estate gains declared contrary to the Constitution.
The development of the taxation of real estate gains from 1 January 2013 established by section 15 of the Finance Act 2013 was declared unconstitutional as infringing equality before public burdens.
The draft article included (Law art. 15):
- The establishment of an allowance exceptional 20% on net taxable capital gains limited only to disposals made from 1 January to 31 December 2013 relating to property and property rights other than Land;
- Elimination of the deduction for holding period from 1 January 2013 for the sale of land to build;
- The submission of capital gains on the sale of building land to tax at progressive rates from 1 January 2015;
- The restoration of the capital gain exemption for social landlords for sales from 1 January 2013 to 31 December 2014.
Regime from 1 January 2013.
As of 1 January 2013, the taxation of real estate gains of individuals whose tax domicile is in France is characterized, as in 2012, a flat rate tax of 19% plus social security charges (CGI art . 200 B).
Unless exemptions, the gross capital gain is reduced by an allowance for holding period which can lead to a total exemption beyond 30 years (CGI art. VC 150).
Subject to any contrary provisions of international conventions, real estate capital gains realized by non-residents continue to be subject to a compulsory levy of 19% or 33 1/3% for sales made on or after 1 January 2013 (CGI art. 244 bis A).
This rate is increased to 75% as of January 1, 2013 (50% in 2012) where the transferor is domiciled, incorporated or constituted in a State or territory not cooperative (Law art. 9 and U-IT). Gains taxable compulsory levy are also subject to social security contributions of 15.50% for sales since August 17, 2012.
In addition to the income tax and social security deductions, capital gains on the disposal of property and property rights other than building land made on or after 1 January 2013 supports an additional fee for the taxable portion over € 50,000.
Stock options and free shares.
Application of the income tax scale validated.
This is however subject to a number of exceptions.
According to the Constitutional Council, the legislature has not created a rupture characterized of equality before public burdens by changing the burden on taxpayers receiving gains and benefits from the exercise of an option or of purchase of shares or the acquisition of bonus shares as of September 28, 2012.
The employee contribution rates of 17.5% and 22.5% is invalid. The law adopted on 20 December planned to increase from 10% to 17.5% or 22.5% in case of transfer within the period of unavailability, rate of contribution salary provided for in Article L. 137-14 of the Code of Social Security applied to the benefit related to the sale of shares acquired by exercise of stock options or bonus shares (Law art. II 11-D-2).
This advantage is also placed in the category of salaries and wages and subject to the CSG and, consequently, the contribution for the repayment of the social debt. New levels of taxation resulting from the increase in the contribution provided for in Article L. 137-14 of the Code of Social Security would poses an undue burden on taxpayers in terms of their ability to pay and are contrary to the principle of equality before public burdens. Therefore, all amendments to Article L. 137-14 of the Code of Social Security under the D of paragraph II of Article 11 are unconstitutional.
purchase price of shares acquired before 1990. Section 11 of the Act has transferred from Article 163 bis C to Article 80a the rule that the acquisition cost of shares acquired before January 1, 1990 is deemed to be the value of the action on the date of exercise of the option (Law art. A-11-I 1 b). Or that article 11 applies to stock options and free shares granted on or after 28 September 2012 (see FH 3477, § 5-1).
The Constitutional Council has struck down these provisions as codified in Article 80 bis of the CGI. Of course, the rule that the acquisition price of the shares acquired before January 1, 1990 is deemed to be equal to the value of the shares on the date of exercise of the option continues to apply, on the basis of Article 163 bis C, the option being granted before 28 September 2012.
Reservations regarding the annual tax on vacant housing (French tax on secondary properties)
The Constitutional Council has confirmed the compliance with the French constitution Article 16 of the Finance Act which increases the tax on vacant housing (Law art. 16; CGI art. 232, as amended). He however this validation together with three reserves.
These reserves are as follows:
- Firstly, housing that could be made habitable at the cost of major works which costs are suffered by the owner can not be subject to tax;
- Second, can not be regarded as vacant furnished accommodation allocated to housing and, as such, subject to the taxe d'habitation (CGI art., 1407, I-1). This is confirmed by the administrative doctrine (BOFiP-IF-AUT-60-§ 80-12/09/2012), which has the effect of excluding from the tax secondary properties ;
- Thirdly, can not be subject to tax on housing which the vacancy is due to a cause unrelated to the will of the lessor, impeding their sustainable occupation, against payment or free of charge, under normal residential, or opposition to their occupation, for consideration, in normal conditions of remuneration of the lessor. And must in particular be exempt housing having vocation to disappear or to be the subject of work under urban redevelopment, rehabilitation or demolition or rental accommodation or sale at market price and not finding any takers.